Credit cards remain the driving force for loyalty with spotlights on the banking sector. Statistics show that as of early 2018, the number of estimated credit card accounts amounted to 364 million in the United States and that figure is steadily rising. The numbers, also, show that out of every 10 Americans, 7 possess, at least, a credit card. Then again, we are seeing fintech startups beginning to rise and actively compete with banks for wallet share. With the rising intensity of the competition, banks must take steps to differentiate themselves by ensuring that their offerings are built around the core needs of customers while assessing the loyalty structure to synergize with these startups.
Basically, banks center their loyalty programs on credit cards and generate revenue from 3 major channels –
- Consumer card fees
- Interchange charges
- Interest fees
Interchange fees are influenced by credit card loyalty in a traditional manner by driving an increasing use of credit cards. The problem, however, is that interchange rates do not weigh much when contrasted with the total revenue accruing from credit cards. Also, as caps have been introduced in certain card types in relation to interchange rates, the revenue accruing to issuing banks, as well as, future funding for loyalty programs have taken a further blow.
Banks have reacted to this situation by implementing some drastic measures. These measures include an increment in credit card fees, as well as, reducing rewards generosity.
Today, what customers mostly see is a similarity in the card offerings that are offered by a variety of banks. Now, when making a selection from credit cards, what customers do is to compare card fees that the banks offer which has fostered a sort of cherry-picking habit and has caused the bank-customer relationship to become transactional.
Additionally, with the evolution of the tech industry, customers continue to expect swift satisfaction from services, thus, encouraging the rise of fintech organizations. This emergence has led to an erosion of traditional bank revenue.
Loyalty programmes premium practices today
Of course, some loyalty programs outperform others and here are some of the best practices which these programmes have leveraged on today –
- Using real-time to enhance convenience
- Digitalization of bank-related processes
- Increasing customer retention by using segment-focused mechanics
- Getting members engaged via experiential rewards
- Leveraging merchant-funded rewards to offer relevance, as well as optimize cost.
Truly speaking, the practices listed above play a significant role in helping some banks to improve their performance. However, the above-listed practices are totally not sufficient to help banks stand out from the competition in the financial services industry.
Banks must begin to become futuristic by building their practices as well as their digital ecosystem around customer needs. To be successful in subsequent years, banks must employ both internal and external assets to maximize value. They have to build a trust while using tech innovations to provide instant access.
BANK LOYALTY TRENDS & OPPORTUNITIES
- Using card based bank loyalty to increase value and impact
Card based loyalty programs are considered to be a strategic necessity which has the potential to help banks in the optimization of loyalty funding by using a model of shared costs. It helps to create and nurture deeper and stronger relationships with customers via the robust insights that are gotten from the consolidation of data.
Banks also can integrate a wide range of products units including loans, savings accounts, and more. This will help them to create an organization that is more equipped to deliver swift solutions and keep customers locked in through a highly rewarding banking process.
- Forming partnerships strategically with tech players to boost innovation
Banks in most part boast a very large pool of customers, brand equity, and experience in the financial services sector. However, what they seem to lack is the relevant architecture that is needed to support technologies which are centered around the customer to enable them to keep up with constantly changing digital needs. If banks collaborate with fintech, they have the opportunity to get their processes streamlined and digitized to help them continue to remain relevant to customers.
- Incorporating block-chain in the process
Today, the blockchain industry is continuously and rapidly emerging, and banks, as well as, other financial institutions can tap into the benefits of the blockchain. In the long run, this will help to save the banking infrastructure a lot in terms of costs. For example, blockchain tech is being used by some banks to greatly lower the amount of time needed to have earn & rewards data processed. With the processing time reduced to almost real-time, members can successfully redeem points in an instant at POS.
- Engaging customers through the use of social media
Due to certain issues related to regulation and compliance, banks, as a tradition, do not really engage in social media. The truth, however, is that if banks begin to leverage social media in an appropriate manner, they will be able to generate tons of data with regards to customer lifecycles and gain insight into customers’ attitudes. The knowledge which social media can offer to banks regarding customer behavior can be overlaid with the data of banks that have to do with transactions, and this can help to build a well-rounded view of customers.
Banks can make use of these vital pieces of information to curate and provide segment-of-one banking solutions which are customized to match customer preferences. With social listening, banks can revamp and greatly improve their processes while getting their customers better engaged.
To ensure the sustainability of banking income in the coming years, it is imperative that banks buckle down and swing into action by taking into consideration the needs and the preferences of their customers. These factors must be placed at their business core and must be included in their loyalty strategies. Banks must build a loyalty structure and system which ensures that customers get rewards from the whole banking relationship. By going into synergies with fintech, they can greatly improve customer experiences and develop smoother and trusted relationships.